Chapter 3 Finance

The ratios that are based on financial statement values and used for comparison purposes are called:financial ratios.industrial statistics.equity standards.accounting returns.analytical standards. financial ratios
The DuPont identity can be accurately defined as:Return on equity × Total asset turnover × Equity multiplier.Equity multiplier × Return on assets.Profit margin × Return on equity.Total asset turnover × Profit margin × Debt-equity ratio.Equity multiplier × Return on assets × Profit margin. Equity multiplier × Return on assets.
Which one of the following is the maximum growth rate that a firm can achieve without any additional external financing?DuPont rateExternal growth rateSustainable growth rateInternal growth rateCash flow rate internal growth rate
The sustainable growth rate is defined as the maximum rate at which a firm can grow given which of the following conditions?No new external financing of any kindNo new debt but additional external equity equal to the increase in retained earningsNew debt and external equity in equal proportionsNew debt and external equity, provided the debt-equity ratio remains constantNo new external equity and a constant debt-equity ratio No new external equity and a constant debt-equity ratio
Builder’s Outlet just hired a new chief financial officer. To get a feel for the company, she wants to compare the firm’s sales and costs over the past three years to determine if any trends are present and also determine where the firm might need to make changes. Which one of the following statements will best suit her purposes?Income statementBalance sheetCommon-size income statementCommon-size balance sheetStatement of cash flows common-size income statement
A common-size balance sheet helps financial managers determine:which customers are paying on a timely basis.if costs are increasing faster or slower than sales.if changes are occurring in a firm’s mix of assets.if a firm is generating more or less sales per dollar of assets than in prior years.the rate at which the firm’s dividend payout is changing if changes are occurring in a firm’s mix of assets
Tower Pharmacy pays out a fixed percentage of its net income to its shareholders in the form of annual dividends. Given this, the percentage shown on a common-size income statement for the dividend account will:remain constant over time.be equal to the dividend amount divided by the net income.vary in direct relation to the net profit percentage.vary in direct relation to changes in the sales level.vary but not in direct relation to any other variable. vary in direct relation to the net profit percentage.
Which one of these transactions will increase the liquidity of a firm?Cash purchase of new production equipmentPayment of an account payableCash purchase of inventoryCredit sale of inventory at costCash payment of employee wages credit sale of inventory at cost
A firm has a current ratio of 1.4 and a quick ratio of .9. Given this, you know for certain that the firm:pays cash for its inventory.has more than half its current assets invested in inventory.has more cash than inventory.has more current liabilities than it does current assets.has positive net working capital. has positive net working capital
Leon is the owner of a corner store. Which ratio should he compute if he wants to know how long the store can pay its bills given its current level of cash and accounts receivable? Assume all receivables are collectible when due.Current ratioDebt ratioCash coverage ratioCash ratioQuick ratio Quick ratio
Which one of the following is a measure of long-term solvency?Price-earnings ratioProfit marginCash coverage ratioReceivables turnoverQuick ratio cash coverage ratio
The cash ratio is used to evaluate the:liquidity of a firm.speed at which a firm generates cash.length of time that a firm can pay its bills if no additional cash becomes available.ability of a firm to pay the interest on its debt.relationship between the firm’s cash balance and its current liabilities. length of time that a firm can pay its bills if no additional cash becomes available.
The equity multiplier is equal to:one plus the debt-equity ratio.one plus the total asset turnover.total debt divided by total equity.total equity divided by total assets.one divided by the total asset turnover. one plus the debt-equity ratio
If a firm has an inventory turnover of 15, the firm:sells its entire inventory every 15 days.stocks its inventory only once every 15 days.delivers inventory to its customers every 15 days.sells its inventory by granting customers 15 days’ of free credit.sells its entire inventory an average of 15 times each year. sells its entire inventory an average of 15 times each year
Which one of the following best indicates a firm is utilizing its assets more efficiently than it has in the past?A decrease in the total asset turnoverA decrease in the capital intensity ratioAn increase in days’ sales in receivablesA decrease in the profit marginA decrease in the inventory turnover rate a decrease in the capital intensity ratio
The Wood Shop generates $.97 in sales for every $1 invested in total assets. Which one of the following ratios would reflect this relationship?Receivables turnoverEquity multiplierProfit marginReturn on assetsTotal asset turnover Total asset turnover
Which one of the following will increase the profit margin of a firm, all else held constant?Increase in interest paidIncrease in fixed costsIncrease in depreciation expenseDecrease in the tax rateDecrease in sales Decrease in the tax rate
You would like to borrow money three years from now to build a new building. In preparation for applying for that loan, you are in the process of developing target ratios for your firm. Which set of ratios represents the best target mix considering that you want to obtain outside financing in the relatively near future?Times interest earned = 1.7; debt-equity ratio = 1.6Times interest earned = 1.5; debt-equity ratio = 1.2Cash coverage ratio = .8; debt-equity ratio = .8Cash coverage ratio = 2.6; debt-equity ratio = .3Cash coverage ratio = .5; total debt ratio = .2 Cash coverage ratio = 2.6; debt-equity ratio = .3
All else held constant, which one of the following will decrease if a firm increases its net income?Return on assetsProfit marginReturn on equityPrice-sales ratioPrice-earnings ratio Price-earnings ratio
Which one of these statements is true concerning the price-earnings (PE) ratio?A high PE ratio may indicate that a firm is expected to grow significantly.A PE ratio of 16 indicates that investors are willing to pay $1 for every $16 of current earnings.PE ratios are unaffected by the accounting methods employed by a firm.The PE ratio is classified as a profitability ratio.The PE ratio is a constant value for each firm. A high PE ratio may indicate that a firm is expected to grow significantly.
Which ratio was primarily designed to monitor firms with negative earnings?Price-sales ratioMarket-to-book ratioProfit marginROEROA Price-sales ratio
The DuPont identity can be used to help a financial manager determine the: I. degree of financial leverage used by a firm.II. operating efficiency of a firm.III. utilization rate of a firm’s assets.IV. rate of return on a firm’s assets. II and III onlyI and III onlyII, III, and IV onlyI, II, and III only I, II, and III only
Outdoor Gear reduced its general and administrative costs this year. This cost improvement will increase which of the following ratios? I. Profit marginII. Return on assetsIII. Total asset turnoverIV. Return on equity I and II onlyI and III onlyII, III, and IV onlyI, II, and IV onlyI, II, III, and IV I, II, and IV only
Sweet Candies reduced its fixed assets this year without affecting the shop’s operations, sales, or equity. This reduction will increase which of the following ratios? I. Capital intensity ratioII. Return on assetsIII. Total asset turnoverIV. Return on equity I and II onlyII and III onlyII, III, and IV onlyI, II, and IV onlyI, II, III, and IV II and III only
Donovan’s would like to increase its internal rate of growth. Decreasing which one of the following will help the firm achieve its goal?Return on assetsNet incomeRetention ratioDividend payout ratioReturn on equity Dividend payout ratio
If a firm has a 100 percent dividend payout ratio, then the internal growth rate of the firm is:zero percent.100 percent.equal to the ROA.negative.infinite. zero percent
The sustainable growth rate is based on the premise that:an additional dollar of debt will be acquired only if an additional dollar in equity shares is issued.no additional equity will be added to the firm.the debt-equity ratio will be held constant.the dividend payout ratio will be zero.the dividend payout ratio will increase at a steady rate. the debt-equity ratio will be held constant
A firm can increase its sustainable rate of growth by decreasing its:profit margin.dividends.total asset turnover.target debt-equity ratio.equity multiplier. dividends
Financial statement analysis:is primarily used to identify account values that meet the normal standards.is limited to internal use by a firm’s managers.provides useful information that can serve as a basis for forecasting future performance.provides useful information to shareholders but not to debtholders.is enhanced by comparing results to those of a firm’s peers but not by comparing results to prior periods. provides useful information that can serve as a basis for forecasting future performance.
Which one of the following statements is correct?Peer group analysis is easier when a firm is a conglomerate versus when it has only a single line of business.Peer group analysis is easier when seasonal firms have different fiscal years.Peer group analysis is simplified when firms use varying methods of depreciation.Comparing results across geographic locations is easier since all countries now use a common set of accounting standards.Adjustments have to be made when comparing the income statements of firms that use different methods of accounting for inventory. Adjustments have to be made when comparing the income statements of firms that use different methods of accounting for inventory.
City Plumbing has inventory of $287,800, equity of $538,800, total assets of $998,700, and sales of $1,027,400. What is the common-size percentage for the inventory account?28.01 percent33.66 percent53.42 percent28.82 percent31.68 percent Inventory common-size percentage = $287,800/$998,700 = .2882, or 28.82 percent
Oil Field Services has net income of $120,400, total assets of $1,219,000, total equity of $694,100, and total sales of $1,521,700. What is the common-size percentage for the net income?9.00 percent7.91 percent15.53 percent12.10 percent8.62 percent Net income common-size percentage = $120,400 / $1,521,700 = .0791, or 7.91 percent
Delmont Movers has a profit margin of 7.1 percent and net income of $63,700. What is the common-size percentage for the cost of goods sold if that expense amounted to $522,600 for the year?12.19 percent23.50 percent53.25 percent61.06 percent58.25 percent COGS common-size percentage = $522,600 / ($63,700 / .071) = .5825, or 58.25 percent
A firm has sales of $811,000 for the year. The profit margin is 5.1 percent and the retention ratio is 56 percent. What is the common-size percentage for the dividends paid?1.99 percent2.86 percent1.21 percent2.24 percent1.42 percent Dividends paid common-size percentage = [$811,000 ×.051 × (1 – .56)] / $811,000 = .0224, or 2.24 percent
Motor Works has total assets of $919,200, long-term debt of $264,500, total equity of $466,900, net fixed assets of $682,800, and sales of $1,021,500. The profit margin is 6.2 percent. What is the current ratio?.79.841.011.261.19 Current ratio = ($919,200 – 682,800) / ($919,200 – 264,500 – 466,900) = 1.26
Wilberton’s has total assets of $537,800, net fixed assets of $412,400, long-term debt of $323,900, and total debt of $388,700. If inventory is $173,900, what is the current ratio?2.01.52.841.181.94 Current ratio = ($537,800 – 412,400) / ($388,700 – 323,900) = 1.94
A firm has net working capital of $6,800 and current assets of $21,800. What is the current ratio?.69.601.451.67.92 Current ratio = $21,800 / ($21,800 – 6,800) = 1.45
Gently Used Goods has cash of $2,950, inventory of $28,470, fixed assets of $9,860, accounts payable of $11,900, and accounts receivable of $4,660. What is the cash ratio?.08.25.30.46.51 Cash ratio = $2,950 / $11,900 = .25
You are analyzing a company that has cash of $8,800, accounts receivable of $15,800, fixed assets of $87,600, accounts payable of $40,300, and inventory of $46,900. What is the quick ratio?1.20.67.83.611.64 Quick ratio = ($8,800 + 15,800) / $40,300 = .61
Deep Sea Fisheries has current liabilities of $238,620, net working capital of $42,580, inventory of $262,750, and sales of $1,941,840. What is the quick ratio?.79.34.082.9412.93 Quick ratio = ($42,580 + 238,620 – 262,750) / $238,620 = .08
The Dry Dock has inventory of $431,700, accounts payable of $94,200, cash of $51,950, and accounts receivable of $103,680. What is the cash ratio?.64.55.53.981.34 Cash ratio = $51,950 / $94,200 = .55
The Wood Shed has cash of $5,800, accounts receivable of $18,600, inventory of $53,100, and net working capital of $2,100. What is the cash ratio?.11.08.26.21.45 Cash ratio = $5,800 / ($5,800 + 18,600 + 53,100 – 2,100) = .08
Towne Realty has total assets of $346,200, net fixed assets of $277,400, current liabilities of $16,100, and long-term liabilities of $124,600. What is the total debt ratio?.47.41.68.56.52 Total debt ratio = ($16,100 + 124,600) / $346,200 = .41
Wiley’s has total equity of $679,400, long-term debt of $316,900, net working capital of $31,600, and total assets of $1,123,900. What is the total debt ratio?.53.40.67.49.63 Total debt ratio = ($1,123,900 – 679,400) / $1,123,900 = .40
A firm has total assets of $638,727, current assets of $203,015, current liabilities of $122,008, and total debt of $348,092. What is the debt-equity ratio?1.031.201.311.43.87 Debt-equity ratio = $348,092 / ($638,727 – 348,092) = 1.20
Allison’s Trees has total assets of $846,200 and total debt of $367,500. What is the equity multiplier?.46.572.171.851.77 Equity multiplier = $846,200 / ($846,200 – 367,500) = 1.77
A firm has an equity multiplier of 1.5. This means that the firm has a:debt-equity ratio of .67.debt-equity ratio of .33.total debt ratio of .50.total debt ratio of .67.total debt ratio of .33. Total debt ratio = (1.5 – 1) / 1.5 = .33
Fresh Foods has sales of $213,600, total assets of $198,700, a debt-equity ratio of 1.43, and a profit margin of 4.8 percent. What is the equity multiplier?.30.431.932.432.30 Equity multiplier = 1 + 1.43 = 2.43
Assume earnings before interest and taxes of $38,218 and net income of $14,042. The tax rate is 34 percent. What is the times interest earned ratio?2.081.733.092.592.26 Times interest earned ratio = $38,218 / {$38,218 – [$14,042 / (1 – .34)]} = 2.26
A firm has net income of $4,238 and interest expense of $898. The tax rate is 35 percent. What is the firm’s times interest earned ratio?7.337.265.388.269.33 Times interest earned ratio = {[$4,238 / (1 – .35)] + $898} / $898 = 8.26
A firm has net income of $28,740, depreciation of 6,170, taxes of $13,420, and interest paid of $2,605. What is the cash coverage ratio?8.7820.1014.1416.3219.55 Cash coverage ratio = ($28,740 + 13,420 + 2,605 + 6,170) / $2,605 = 19.55
Mistletoe Gifts has $93,840 in total assets, depreciation of $2,106, and interest of $1,214. The total asset turnover rate is .94. Earnings before interest and taxes are equal to 19 percent of sales. What is the cash coverage ratio?6.337.5115.5410.2313.98 Cash coverage ratio = [.19 × .94 × $93,840)] + $2,106] / $1,214 = 15.54
UXZ has sales of $683,200, cost of goods sold of $512,900, and inventory of $74,315. What is the inventory turnover rate?7.33 times6.90 times5.70 times7.14 times8.47 times Inventory turnover = $512,900 / $74,315 = 6.90 times
SRC, Inc., sells its inventory in an average of 43 days and collects its receivables in 3.6 days, on average. What is the inventory turnover rate? Assume a 365-day year.8.497.298.6810.187.13 Inventory turnover = 365 / 43 = 8.49 times
Phil’s Carvings sells its inventory in 93 days, on average. Costs of goods sold for the year are $187,200. What is the average value of the firm’s inventory? Assume a 365-day year.$20,129$47,698$57,132$61,096$32,513 Inventory = $187,200 × 93 / 365 = $47,698
Kessler Cleaners has accounts receivable of $28,943, total assets of $387,600, cost of goods sold of $317,400, and a capital intensity ratio of .97. What is the accounts receivable turnover rate?12.6313.8112.4214.6110.97 Accounts receivable turnover = ($387,600 / .97) / $28,943 = 13.81
It takes K’s Boutique an average of 53 days to sell its inventory and an average of 16.8 days to collect its accounts receivable. The firm has sales of $942,300 and costs of goods sold of $692,800. What is the accounts receivable turnover rate? Assume a 365-day year.23.6911.4121.7324.2319.55 Accounts receivable turnover = 365 / 16.8 = 21.73
Leisure Products has sales of $738,800, cost of goods sold of $598,200, and accounts receivable of $86,700. How long on average does it take the firm’s customers to pay for their purchases? Assume a 365-day year.8.65 days11.28 days25.01 days42.83 days45.33 days Days’ sales in receivables = 365 / ($738,800 / $86,700) = 42.83 days
Jessica’s Sports Wear has $38,100 in receivables and $523,700 in total assets. The total asset turnover rate is 1.17 and the profit margin is 7.3 percent. How long on average does it take to collect the receivables? Assume a 365-day year.26.91 days19.45 days11.68 days31.07 days22.70 days Days’ sales in receivables = 365 / [(1.17 × $523,700) / $38,100] = 22.70 days
AZ Sales has total revenue of $318,400, cost of goods sold equal to 72 percent of sales, and a profit margin of 8.1 percent. Net fixed assets are $154,500 and current assets are $89,500. What is the total asset turnover rate?1.081.381.301.241.28 Total asset turnover = $318,400 / ($154,500 + 89,500) = 1.30
Whitt’s BBQ has sales of $1,318,000, a profit margin of 7.4 percent, and a capital intensity ratio of .78. What is the total asset turnover rate?1.041.081.131.431.28 Total asset turnover = 1 / .78 = 1.28
The Fabric House has sales of $411,800, total equity of $237,400, and a debt-equity ratio of .55. What is the capital intensity ratio?.89.831.061.201.27 Capital intensity ratio = [(1 + .55) × $237,400] / $411,800 = .89
Discount Outlet has net income of $389,100, a profit margin of 2.8 percent, and a return on assets of 8.6 percent. What is the capital intensity ratio?.33.671.491.343.07 Capital intensity ratio = ($389,100 / .086) / ($389,100 / .028) = .33
Bed Bug Inn has annual sales of $137,000. Earnings before interest and taxes is equal to 5.8 percent of sales. For the period, the firm paid $4,700 in interest. What is the profit margin if the tax rate is 34 percent?-2.43 percent1.56 percent3.33 percent-5.29 percent-6.11 percent Profit margin = {[(.058 × $137,000) – $4,700] × (1 – .34)} / $137,000 = .0156, or 1.56 percent
Fast Kars has a return on equity of 22.3 percent, a profit margin of 14.2 percent, and total equity of $467,000. What is the net income?$69,608$113,875$104,141$66,314$109,897 Net income = .223 × $467,000 = $104,141
Goshen Industrial Sales has sales of $487,600, total equity of $367,700, a profit margin of 5.1 percent, and a debt-equity ratio of .34. What is the return on assets?5.89 percent5.05 percent6.76 percent8.80 percent7.33 percent Return on assets = (.051 ×$487,600)/[(1 + .34) ×$367,700)] = .0505, or 5.05 percent
If sales are $211,000, the profit margin is 6.3 percent, and the capital intensity ratio is .94, what is the return on assets?4.42 percent6.08 percent6.39 percent6.92 percent6.70 percent Return on assets = (.063 ×$211,000)/(.94 ×$211,000) = .0670, or 6.70 percent
Health Centers, Inc., has total equity of $948,300, sales of $1.523 million, and a profit margin of 4.4 percent. What is the return on equity?4.21 percent6.49 percent7.18 percent8.68 percent7.07 percent Return on equity = (.044 ×$1,523,000)/$948,300 = .0707, or 7.07 percent
BR Trucking has total sales of $911,300, a total asset turnover of 1.1, and a profit margin of 5.87 percent. Currently, the firm has 18,500 shares outstanding. What are the earnings per share?$2.92$2.97$2.86$2.58$2.89 Earnings per share = (.0587 ×$911,300)/18,500 = $2.89
KBJ has total assets of $613,000. There are 21,000 shares of stock outstanding with a market value of $13 a share. The firm has a profit margin of 6.2 percent and a total asset turnover of 1.08. What is the price-earnings ratio?6.387.996.655.127.41 Price-earnings ratio = $13 /{[.062 ×($613,000 ×1.08)]/21,000} = 6.65
The Kids’ Mart has a market-to-book ratio of 3.3, net income of $87,100, a book value per share of $18.50, and 7,500 shares of stock outstanding. What is the price-earnings ratio?4.348.165.616.255.26 Price-earnings ratio = (3.3 ×$18.50)/($87,100/7,500) = 5.26
Dellf’s has a profit margin of 3.8 percent on sales of $287,200. The firm currently has 5,000 shares of stock outstanding at a market price of $7.11 per share. What is the price-earnings ratio?3.268.0211.505.9312.84 Price-earnings ratio = $7.11/[(.038 ×$287,200)/5,000] = 3.26
A firm has sales of $311,000 and net income of $31,600. The price-sales ratio is 3.24 and market price is $36 per share. How many shares are outstanding?20,60827,99028,35630,51531,011 Price-sales ratio = 3.24 = $36/($311,000/Outstanding shares) Outstanding shares = 27,990
Healthy Foods has a book value per share of $32.68, earnings per share of $3.09, and a price-earnings ratio of 16.8. What is the market-to-book ratio?1.081.591.992.472.16 Market-to-book ratio = ($3.09 ×16.8)/$32.68 = 1.59
The Inside Door has total debt of $208,600, total equity of $343,560, and a return on equity of 13.27 percent. What is the return on assets?9.14 percent8.26 percent11.45 percent9.61 percent9.48 percent Return on assets = (.1327× $343,560)/($208,600 + 343,560)= .0826, or 8.26 percent
Mike’s Place has total assets of $152,080, a debt-equity ratio of .62, and net income of $14,342 What is the return on equity?13.48 percent13.73 percent15.74 percent15.28 percent14.61 percent Return on equity = ($14,342/$152,080) ×(1 + .62) = .1528, or 15.28 percent
Computer Geeks has sales of $618,900, a profit margin of 13.2 percent, a total asset turnover rate of 1.54, and an equity multiplier of 1.06. What is the return on equity?18.91 percent12.67 percent18.28 percent22.11 percent21.55 percent Return on equity = .132 ×1.54 ×1.06 = .2155, or 21.55 percent
A firm has net income of $197,400, a return on assets of 8.4 percent, and a debt-equity ratio of .72. What is the return on equity?11.67 percent18.98 percent14.45 percent16.22 percent15.06 percent Return on equity = .084 ×(1 + .72) = .1445, or 14.45 percent
The Blue Lagoon has a return on equity of 23.62 percent, an equity multiplier of 1.48, and a capital intensity ratio of 1.06. What is the profit margin?15.06 percent13.57 percent15.84 percent16.92 percent14.60 percent Profit margin = .2362/[(1 / 1.06) ×1.48] = .1692, or 16.92 percent
The Saw Mill has a return on assets of 7.92 percent, a total asset turnover rate of 1.18, and a debt-equity ratio of 1.46. What is the return on equity?14.26 percent13.64 percent12.28 percent19.48 percent12.03 percent Return on equity = .0792 ×(1 + 1.46) = .1948, or 19.48 percent
Bamp;C Co. has net income of $48,200, sales of $947,100, a capital intensity ratio of .87, and an equity multiplier of 1.53. What is the return on equity?6.77 percent5.93 percent8.95 percent12.21 percent14.09 percent Return on equity = ($48,200/$947,100) ×(1/.87) ×1.53 = .0895, or 8.95 percent
World Exports has total assets of $938,280, a total asset turnover rate of 1.18, a debt-equity ratio of .47, and a return on equity of 18.7 percent. What is the firm’s net income?$119,359.43$88,303.33$104,624.14$121,548.09$92,236.67 Return on equity = .187 = (Net income/$938,280) ×(1 + .47) Net income = $119,359.43
Western Hardwoods has total equity of $318,456, a profit margin of 3.79 percent, an equity multiplier of 1.68, and a total asset turnover of .97. What is the amount of the firm’s sales?$518,956$473,550$195,420$190,839$639,440 Sales = $318,456 ×1.68 ×.97 = $518,956
Tessler Farms has a return on equity of 11.28 percent, a debt-equity ratio of 1.03, and a total asset turnover of .87. What is the return on assets?5.56 percent8.06 percent13.67 percent15.24 percent17.41 percent Return on assets = .1128 /(1 + 1.03) = .0556, or 5.56 percent
Al’s Markets earns $.12 in profit for every $1 of equity and borrows $.65 for every $1 of equity. What is the firm’s return on assets?12.00 percent7.27 percent15.15 percent13.75 percent8.33 percent ROE= ($.12/$1) = ROA×[($1 + .65)/$1] ROA = .0727, or 7.27 percent
Good Foods has net income of $82,490, total equity of $518,700, and total assets of $1,089,500. The dividend payout ratio is .30. What is the internal growth rate?2.32 percent3.57 percent5.60 percent2.87 percent4.94 percent Internal growth rate = [($82,490/$1,089,500) ×(1 -.30)]/{1 – [($82,490/$1,089,500) ×(1 -.30)]} = .0560, or 5.60 percent
Fried Donuts has sales of $764,900, total assets of $687,300, total equity of $401,300, net income of $68,200, and dividends paid of $27,000. What is the internal growth rate?5.48 percent6.38 percent5.98 percent7.34 percent7.92 percent Internal growth rate = {($68,200/$687,300) ×[($68,200 -27,000)/$68,200]}/(1 -{($68,200/$687,300) ×[($68,200 -27,000)/$68,200]}) = .0638, or 6.38 percent
A firm has adopted a policy whereby it will not seek any additional external financing. Given this, what is the maximum growth rate for the firm if it has net income of $32,600, total equity of $294,000, total assets of $503,000, and a 25 percent dividend payout ratio?5.11 percent4.88 percent6.62 percent7.67 percent8.37 percent Internal growth rate = [($32,600/$503,000) ×(1 -.25)]/{1 – [($32,600/$503,000) ×(1 -.25)]} = .0511, or 5.11 percent
Lookin’ Up earns $.094 in profit on every $1 of sales and has $1.21 in assets for every $1 of sales. The firm pays out 45 percent of its profits to its shareholders. What is the internal growth rate?6.37 percent2.76 percent3.82 percent4.46 percent2.65 percent Internal growth rate = [($.094/$1.21) ×(1 -.45)]/{1 – [($.094/$1.21) ×(1 -.45)]} = .0446, or 4.46 percent
DJ’s has a total asset turnover rate of 1.13, an equity multiplier of 1.46, a profit margin of 5.28 percent, a retention ratio of .74, and total assets of $138,000. What is the sustainable growth rate?6.98 percent6.89 percent7.33 percent7.04 percent7.21 percent Sustainable growth rate = [(.0528 ×1.13 ×1.46) ×.74]/{1 – [(.0528 ×1.13 ×1.46) ×.74]} = .0689, or 6.89 percent
A firm has a return on equity of 17.8 percent, a return on assets of 11.3 percent, and a 65 percent dividend payout ratio. What is the sustainable growth rate?5.72 percent6.84 percent7.12 percent11.38 percent6.64 percent Sustainable growth rate = [.178 ×(1 -.65)]/{1 – [.178 ×(1 -.65)]} = .0664 or 6.64 percent
Pizza Pie maintains a constant debt-equity ratio of .55. The firm had net income of $14,800 for the year and paid $12,000 in dividends. The firm has total assets of $248,000. What is the sustainable growth rate?3.38 percent2.27 percent1.78 percent3.62 percent4.97 percent Sustainable growth rate = {[($14,800/$248,000)×(1 + .55)] ×[($14,800 -12,000)/$14,800]}/(1 – {[($14,800/$248,000)×(1 + .55)] ×[($14,800 -12,000)/$14,800]}) = .0178, or 1.78 percent
The Donut Hut has sales of $68,000, current assets of $11,300, net income of $5,100, net fixed assets of $54,900, total debt of $23,800, and dividends of $800. What is the sustainable growth rate?10.48 percent11.29 percent11.79 percent12.08 percent12.39 percent Sustainable growth rate = {[$5,100/($11,300 + 54,900 -23,800)] ×[($5,100 -800)/$5,100]}/(1 – {[$5,100/($11,300 + 54,900 -23,800)] ×[($5,100 -800)/$5,100]}) = .1129, or 11.29 percent
Last year, a firm earned $67,800 in net income on sales of $934,600. Total assets increased by $62,000 and total equity increased by $43,500 for the year. No new equity was issued and no shares were repurchased. What is the retention ratio?29.62 percent35.84 percent56.25 percent70.38 percent64.16 percent Plowback ratio = $43,500/$67,800 = .6416, or 64.16 percent
Last year, Teresa’s Fashions earned $2.03 per share and had 15,000 shares of stock outstanding. The firm paid a total of $16,672 in dividends. What is the retention ratio?45.25 percent64.07 percent52.00 percent40.21 percent54.75 percent Plowback ratio = 1 – [($16,672 / 15,000)/$2.03] = .4525, or 45.25 percent
Adell Furniture has a profit margin of 8.2 percent on sales of $211,000. The common size ratio of dividends is .03 and total assets are $196,000. What is the plowback ratio?58.20 percent27.33 percent54.60 percent63.41 percent68.20 percent Plowback ratio = [(.082 × $211,000) – (.03× $211,000)] / (.082 × $211,000) = .6341, or 63.41 percent
Lawler’s BBQ has sales of $311,800, a profit margin of 3.9 percent, and dividends of $4,500. What is the plowback ratio?46.32 percent49.78 percent50.23 percent58.09 percent62.99 percent Plowback ratio = 1 – [$4,500/(.039 ×$311,800)] = .6299, or 62.99 percent
Peterboro Supply has a current accounts receivable balance of $391,648. Credit sales for the year just ended were $5,338,411. How long did it take on average for credit customers to pay off their accounts during the past year? Assume a 365-day year.24.78 days26.78 days29.09 days31.15 days33.33 days Days’ sales in receivables = 365/($5,338,411 / $391,648) = 26.78 days
Sunshine Rentals has a debt-equity ratio of .67. The return on assets is 8.1 percent, and total equity is $595,000. What is the net income?$82,147.09$81,311.29$80,485.65$78,887.02$83,013.69 Net income = .081 ×(1 + .67) ×$595,000 = $80,485.65
Turner’s Store had a profit margin of 6.8 percent, sales of $498,200, and total assets of $542,000. If management set a goal of increasing the total asset turnover to 1.10 times, what would the new sales figure need to be, assuming no increase in total assets?$467,185$492,727$488,500$596,200$657,480 Total asset turnover = 1.10 ×$542,000 = $596,200
High Road Transport has a current stock price of $5.60. For the past year, the company had net income of $287,400, total equity of $992,300, sales of $1,511,000, and 750,000 shares outstanding. What is the market-to-book ratio?3.543.813.994.474.23 Market-to-book = $5.60 /($992,300 / 750,000) = 4.23
Taylor, Inc. has sales of $11,898, total assets of $9,315, and a debt-equity ratio of .55. If its return on equity is 14 percent, what is its net income?$841.35$887.16$904.10$911.16$927.46 Net income = [$9,315 / (1 + .55)]× .14 = $841.35
Mercier United has net income of $128,470. There are currently 32.67 days’ sales in receivables. Total assets are $1,419,415, total receivables are $122,306, and the debt-equity ratio is .40. What is the return on equity?11.42 percent12.67 percent13.09 percent13.48 percent15.03 percent Return on equity = ($128,470/$1,419,415) ×(1 + .40)] = .1267, or 12.67 percent
For the most recent year, Wilson Enterprises had sales of $689,000, cost of goods sold of $492,300, depreciation expense of $61,200, additions to retained earnings of $48,560, and dividends per share of $2.18. There are 12,000 shares of common stock outstanding and the tax rate is 35 percent. What is the times interest earned ratio?5.475.096.597.153.67 Net income = $48,560 + ($2.18 ×12,000) = $74,720 Earnings before taxes = [$74,720/(1 -.35)] = $114,953.85 Earnings before interest and taxes = $689,000 -492,300 -61,200 = $135,500 Interest = $135,500 -114,953.85 = $20,546.15 Times interest earned = $135,500/$20,546.15 = 6.59
A fire has destroyed a large percentage of the financial records of the Strongwell Co. You have the task of piecing together information in order to release a financial report. You have found the return on equity to be 13.8 percent. Sales were $979,000, the total debt ratio was .42, and total debt was $548,000. What is the return on assets?6.92 percent8.00 percent8.45 percent9.03 percent9.29 percent Debt-equity ratio = .42/(1 -.42) = .72414 Return on assets = .138/(1 + .72414) = .0800, or 8.00 percent
Donegal’s Industrial Products wishes to maintain a growth rate of 6 percent a year, a debt-equity ratio of .45, and a dividend payout ratio of 30 percent. The ratio of total assets to sales is constant at 1.25. What profit margin must the firm achieve?4.68 percent5.29 percent6.33 percent6.97 percent8.19 percent Sustainable growth = .06 = {[PM ×(1/1.25) ×(1 + .45)] ×(1 -.30)}/ (1 – {[PM ×(1/1.25) ×(1 + .45)] ×(1 -.30)}) = .0697, or 6.97 percent
A firm wishes to maintain an internal growth rate of 4.5 percent and a dividend payout ratio of 60 percent. The current profit margin is 7.5 percent and the firm uses no external financing sources. What must be the total asset turnover?.981.061.211.441.59 Internal growth rate = .045 = [.075 ×TAT ×(1 -.60)]/{1 – [.075 ×TAT ×(1 -.60)]} TAT = 1.44

Leave a Reply

Your email address will not be published. Required fields are marked *